Tiger Global’s 34% drop brings Coleman’s business back to earth

(Bloomberg) – In his twenties, he was a hedge fund whiz. At 40, a hedge fund legend. But suddenly, Chase Coleman stumbles, and hard.

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After a tough 2021, its Tiger Global Management has racked up losses this year that have sent the sector into a frenzy – a staggering 34% drop for the firm’s hedge fund through March. The speed of the reversal shocked just about everyone, given that Coleman is celebrated as one of the brightest stars of his generation, a star among elite money managers mentored by famed Julian Robertson .

The bad run was fueled by massive stock bets that got hammered, market swings amid Russia’s invasion of Ukraine and a serious tough time for fast-growing tech companies in the US. States and China which have for so long driven Tiger Global’s gains. The poor performance on Friday prompted humility, something the $100 billion giant has rarely had to express in its two decades of near-unblemished success.

“At this time, we are humble, but stable in our belief and confident of the opportunity to move forward,” the firm’s investment team wrote in a letter sent to investors. “We are re-evaluating and refining our models using all the data we have.”

A Tiger Global spokeswoman declined to comment.

Built by Coleman and his partner Scott Shleifer, Tiger Global has long been seen as a throwback to the industry’s glory days, when double-digit returns were the norm and top managers unerringly backed winning companies and short – circuited the losers. Coleman, 46, has shown that a 2 and 20 fee can still be a price to pay: in 2020 alone, his flagship hedge fund jumped 48%.

The recent turn in the fortunes of Tiger Global has done more harm than Coleman’s professional pride. Of the company’s $35 billion in funds focused on public companies, losses this year have triggered a hit of more than $10 billion for investors, including foundations, endowments and pension funds. , as well as insiders at Tiger Global. And Coleman’s personal wealth fell by $1.3 billion, according to calculations by the Bloomberg Billionaires Index.

Coleman worked as a technology analyst at Robertson’s Tiger hedge fund for less than four years before becoming an official Tiger Cub in 2001, the term referring to Robertson proteges who started their own businesses.

Originally Tiger Technology, the new store has expanded into payments, education and other industries and changed its name to Tiger Global. In the early 2000s, Coleman and Shleifer added private investments to the mix, realizing before many of their peers that they could find higher returns outside of public markets.

The company’s first serious bump came during the 2008 financial crisis, when it lost 26%, followed by a 1% gain the following year. Coleman has banded together, vowing to return to his tech roots and avoid industries where politics or macro events might interfere.

This approach has paid off spectacularly. Through 2020, Tiger Global’s annualized returns on its hedge fund were over 20%, with just two years of losses.

Missed bets

But now his biggest bets are dragging the fund down. With markets already jittery this year due to high inflation and rate hike expectations, Russia’s war on Ukraine sparked a flight from risk.

The tech-heavy Nasdaq 100 and small-cap Russell 2000 each entered a 20% bear market in the first quarter, although losses were pared in late March.

Tiger Global’s particular loss has been to remain closely tied to the tech companies, particularly Chinese ones, that had brought it so much success.

An example is JD.com Inc., which started out as a $200 million bet in 2009 and eventually produced a net profit of $5 billion. As of December 31, this was the fund’s largest holding.

Battered by the markets, a regulatory crackdown in China and growing tensions between Beijing and Washington, JD.com fell 20% last year in New York and is down 16% in 2022.

“In hindsight, we should have sold more stocks from our portfolio in 2021 than we did,” Tiger Global’s investment team said in Friday’s letter.

The fund is not alone in its struggles. Another Tiger cub, Philippe Laffont’s Coatue Management, another company that performed strongly on its technology bets, fell 10% in the first quarter. Some of its top stock holdings at the end of the year, Rivian Automotive Inc. and Moderna Inc., fell 52% and 32%, respectively.

The MSCI World Information Technology Index, which rose 562% in the decade to 2021, fell 10% in the first three months of the year, according to data compiled by Bloomberg.

Private questions

The damage to Tiger Global’s hedge fund extended to its private holdings.

Managers have “adjusted valuations down” of the fund’s private investments to account for pressure from their public market peers, they said in the letter to clients. The fund holds shares of private companies such as ByteDance, Stripe, Checkout and Databricks.

It’s unclear what the declines mean for Tiger Global’s venture capital business, where assets stood at $65 billion at the end of last year.

Almost a quarter of Tiger’s private bets in August were in China, which has become a minefield for investors amid regulatory repression.

President Xi Jinping has tightened his grip on the country’s tech sector, imposing new restrictions and jailing some leaders to curb what he sees as the excesses of capitalism. While recent signals from the ruling Communist Party suggest the crackdown may be easing, the policy has shaken confidence in even the biggest and most successful companies.

An audit dispute between China and the United States has also weighed on stock prices, threatening to see Chinese companies kicked out of U.S. stock exchanges. There was renewed optimism on Saturday that such an outcome could be averted after China signaled its willingness to grant U.S. regulators full access to company audit reports.

In its letter, Tiger Global said it was “encouraged” by China’s recent support for stable capital markets and statements that the government is focusing on the competitiveness of technology companies. Still, the company said it was aware that risks remained and that it “will seek data as the situation evolves”.

Led by Shleifer, Tiger’s Private Investment Partners funds — which take non-controlling stakes in startups — have returned an average of 27% annually. Last year, these funds gained 54% and brought in $4 billion to investors, according to a person familiar with the matter. Even amid the tumultuous start to this year, investor appetite remains intact: in Friday’s letter, the company said it had received net inflows every month this year into its public funds and recently closed its fund. venture capital fund PIP 15 with $12.7 billion.

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